MEMORANDUM OPINION AND ORDER
Introduction
Plaintiffs Amish Desai, Christopher and Therese Long, and Elizabeth Lamb (collectively “Plaintiffs”) brought this action alleging Defendants engaged in securities fraud in violation of the federal securities statutes. Before the Court is Plaintiffs’ Motion for Class Certification. Defendants challenge the Motion alleging that Plaintiffs are not adequate class representatives and that individual, rather than common, issues of law and fact are predominant in this action. For the reasons set forth below, the Court will deny Plaintiffs’ Motion.
Background
Many of the facts alleged in Plaintiffs’ Complaint
Genesis is a Delaware corporation with its registered address in Van Nuys, California, and is in the business of developing, among other things, internet kiosks in shopping malls; its stock was offered to the public at $8.50 per share in the spring of 1999. The scheme that Defendants perpetrated regarding Genesis stock allegedly caused Genesis shares to increase from $12 per share to over $52 per share on a pre-split basis. (Compl.H 3(c).) Genesis voluntarily delisted its stock from the NASDAQ on January 29, 2002, and its stock now trades for pennies a share.
Plaintiffs allege that Defendants orchestrated a sophisticated scheme in which Defendants manipulated the price of Genesis stock — a thinly traded security — thereby artificially inflating the price of the stock. “The scheme involved the active manipulation of Genesis’ stock price (through both the release of materially false and misleading information about Genesis and the coordinated, manipulative and deceptive trading of Genesis shares) in order to maintain artificially ... inflated market prices of Genesis stock and profit from the stock loans.” (Compl.H 68.) According to the Complaint, Defendants
(i) secretly [paid] two purportedly independent and unrelated stock market analysts for approximately 19 separate, positive and baseless recommendations of Genesis stock made, inter alia, on financial television shows with national distribution, which recommendations were made*325 as part of defendants’ scheme to manipulate and inflate the price of Genesis’ stock;
(ii) [engaged] in a variety of undisclosed, manipulative and deceptive acts — such as establishing control over the supply of Genesis stock, financing and directing fraudulent trading activity designed to inflate the stock price, engaging in collusive trading at pre-set prices, and strategically intervening in the market on crucial occasions in order to support Genesis’ share-price when it was threatened by adverse news concerning Genesis — intended to manipulate the market for and price of Genesis shares and to sustain Genesis’ already-inflated share price; and
(iii) [disseminated] false and misleading statements.
(Compl.1T 42.) Defendants were able to manipulate the stock, according to Plaintiffs, because they owned and controlled a majority of Genesis’s outstanding stock. (Id. 1T 3(b).) Plaintiffs claim that they were damaged because they “relied on the integrity of the market price of Genesis publically traded stock” (id. IT 45), but that price was artificially inflated due to Defendants’ manipulation of the market.
A. The Named Plaintiffs and Their Complaint
The named plaintiffs seek to represent a class consisting of all persons who purchased Genesis common stock on the open market between December 21, 1999 and September 25, 2001. (Compl.111.) Lead plaintiff Desai bought 50,000 shares of Genesis stock on September 25, 2001, the last day of the proposed class period. (Compl.Ex. B.) Roughly three weeks prior to that date, Genesis had announced that it planned to split its stock “three for one” on September 25. (Desai Dep. Tr. at 62-64.) The stock split would have caused the price of a single Genesis share to decrease. Desai was aware of this announcement, and on September 25, saw that the price of Genesis shares had gone down, but had not decreased in a “three-to-one ratio,” which suggested to Desai that the price decrease was not due to the planned stock split. (Id. at 65.) Desai “did a little research” and found that Genesis had decided to postpone the stock split, which meant, to Desai, that “there was a lot of confusion on the street as to why the stock was ticking like that.” (Id. at 62-63.) Apparently, some traders thought the stock was trading at a post-split price, when in fact the stock had not been split. Desai decided to buy his shares of Genesis stock on September 25, 2001, because the “mass confusion among traders” over the stock split “provided a compelling entry point” for him. (Id. at 170-71.)
The Longs hold 100 shares of Genesis stock. (Goodchild Deck Ex. 7.) The Long’s bought their Genesis shares in February 2000, after watching a television program in which Defendant Courtney Smith touted the stock as a “double-your-money-pick.” (T. Long Dep. Tr. at 44-46.) On May 23, 2001, subsequent to the Long’s purchase of Genesis shares, investigative news reports exposed a relationship between Smith and Genesis, and traced Genesis’s attempts to conceal this relationship. (Compl.1T 203.) That relationship allegedly involved Genesis paying Smith for his positive reviews of the company. (Id. 1T1T157-77.)
Lamb holds 100 shares of Genesis as well. (Goodchild Decl. Ex. 8.) Like Desai, Lamb purchased her shares late in the class period, on September 20,2001. (Id.)
Plaintiffs assert three causes of action against Defendants in their Complaint. First, they allege that Defendants violated § 10(b) of the Securities and Exchange Act of 1934 by:
(i) employing devices, schemes, and artifices to defraud; (ii) making untrue statements of material facts or omitting to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (iii) engaging in acts, practices, and a course of business that operated as a fraud or deceit upon Lead Plaintiffs and others similarly situated in connection with their purchases of Genesis stock during the Class Period.
(Compl.1T 262.) Central to this claim is Plaintiffs’ allegation that they suffered damages because “in reliance on the integrity of the market, they paid artificially inflated prices for Genesis stock. Lead Plaintiffs and the Class would not have purchased Genesis stock at the prices they paid, or at all, if they had been aware that the market prices had
Second, Plaintiffs allege that Defendants are liable pursuant to § 20(a) of the Act in that they acted “as controlling persons of Genesis, each of the Officer Defendants, Ultimate Holdings, Khashoggi, and the Deutsche Bank Stock Loan Defendants.” (Id. 11272.) This claim is dependant on a finding of liability for violation of § 10(b) of the Act.
Finally, Plaintiffs allege that three of the defendants (Ultimate Holdings, Khashoggi, and El-Batrawi) violated § 20A of the Act by disseminating “materially false and misleading information to the public while selling their own shares at artificially inflated prices” and reaping millions of dollars in profits. (Id. 1111276-80.)
B. Procedural Backdrop of Plaintiffs’ Case
Beginning in October 2001, several putative class action lawsuits were commenced in the United States District Court for the Central District of California (the “California court”), asserting federal securities law claims arising out of Genesis’s collapse. The claims were similar to those asserted here. Pursuant to the procedures put in place by the Private Securities Litigation Reform Act (“PSLRA”), 15 U.S.C. § 78u-4(a)(3), Desai sought appointment as lead plaintiff.
The California court initially denied the joint motion, citing concern over “the typicality and adequacy of the lead plaintiff.” (Goodchild Decl. Ex. 10 at 3.) However, in response to further briefing from Desai and Horizon (FBW withdrew from the motion and brought suit on its own behalf), the court granted the motion appointing the two parties as lead plaintiffs of the class. (Id., Ex. 13.) The California court noted, however, that its decision was made “[i]n light of the failure of any other party to apply for lead plaintiff.” (Id., Ex. 13 at 2.) On June 9, 2003, the action was transferred to this Court and consolidated for pre-trial purposes with the other related actions brought by individual plaintiffs.
Since the transfer of the action to this Court, Horizon withdrew as lead plaintiff of the class. (Id., Ex. 15.) Prior to Horizon withdrawing, however, Plaintiffs’ counsel added Lamb and the Longs as class representatives. Lamb and the Longs have not been determined by the Court to be appropriate lead plaintiffs under the PSLRA.
C. The Legal Backdrop of Plaintiffs’ Complaint
As discussed above, Plaintiffs have brought a claim against Defendants under § 10(b) of the Securities and Exchange Act of 1934. Under § 10(b), it is unlawful for any person, “directly or indirectly ... [t]o use or employ, in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe____” 15 U.S.C. § 78j(b). Section 10(b) is not limited to a purchaser or seller of securities, but rather reaches any deceptive device used “in connection with the purchase or sale of any security.” Id.
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
17 C.F.R. § 240.10b-5. Rule 10b-5 is coextensive in scope with § 10(b). See Ernst & Ernst v. Hochfelder,
To recover under Rule 10b-5, a plaintiff must establish:
1) that the defendant acted in a manner prohibited by the Rule, whether it be that the defendant employed a device, scheme, or artifice to defraud, made misrepresentations or omissions of material fact, or engaged in acts, practices or courses of business that operate as a fraud or deceit; 2) causation, often analyzed in terms of materiality and reliance; 3) damages; and 4) that the fraudulent activity occurred in connection with the purchase and sale of a security.
In re NationsMart Corp. Sec. Litig.,
Standard of Review
Class certifications are governed by Rule 23 of the Federal Rules of Civil Procedure. The Court may certify a class action “only when it is satisfied after rigorous analysis that all of Rule 23’s prerequisites are met.” Lockwood Motors, Inc. v. General Motors Corp.,
One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative*328 parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
Fed.R.Civ.P. 23(a); In re St. Jude Medical, Inc.,
The party seeking class certification bears the burden of establishing that it has satisfied each of Rule 23’s class certification requirements. Lockwood Motors,
Analysis
A. The Rule 23(a) Requirements
1. Numerosity
“In order to maintain a class action, Plaintiffs must show that the class of plaintiffs is so large that joinder of all members would be ‘impracticable.’ ” In re Potash Antitrust Litig.,
Plaintiffs assert that the trading volume of Genesis common stock was 167,740,-200 shares, which is an average of 380,363 shares per day during the class period. They claim that Genesis had more than 23 million shares of stock outstanding, and those shares were owned by “hundreds if not thousands of persons.” (Compl.1148.) Defendants do not challenge the proposed class on numerosity grounds.
2. Commonality
The second provision of Rule 23(a) requires Plaintiffs to show “that there are questions of law or fact common to the class.” Fed.R.Civ.P. 23(a)(2). While not every question of law and fact must be common to the entire class, Plaintiffs must show that the course of action giving rise to their cause of action affects all putative class members, or that at least one of the elements of that cause of action is shared by all of the putative class members. See Lockwood Motors,
This case links a common legal theory — securities law violations — to a common group — purchasers of Genesis shares. Defendants do not challenge class certification on commonality grounds. The Court therefore concludes that Plaintiffs satisfy the commonality requirement.
3. Typicality
The third requirement of Rule 23(a) calls for the party seeking certification to show that “the claims or defenses of the representative parties are typical of the
While the Court is aware that, in some circumstances, the test for typicality is “fairly easily met so long as other class members have claims similar to the named plaintiff,” DeBoer v. Mellon Mortg. Co.,
[a] district court must evaluate carefully the legitimacy of the named plaintiffs plea that he is a proper class representative under Rule 23(a). The adequacy and typicality requirements serve as guideposts for determining whether maintenance of a class action is economical and whether the named plaintiffs claim and the class claims are so interrelated that the interests of the class members will be fairly and adequately protected in their absence.
In re Milk Products Antitrust Litig.,
Defendants challenge Plaintiffs’ ability to satisfy the typicality requirement. They base their argument on Desai’s testimony that he bought his 50,000 shares of Genesis stock in reliance on his understanding that the market did not accurately price the stock at the time he bought it. They further argue that the disclosure in the news of information connecting Smith to Genesis prior to Desai and Lamb’s purchase of Genesis shares further exposes those plaintiffs to unique defenses. These factors, according to Defendants, create conflict within the class representatives and the purported class fatal to certification. (Deutsche Bank Mem. in Opp’n at 8-9.)
The allegations in this case indicate that various plaintiffs may be subject to unique defenses regarding their reliance on the integrity of the market. For example, a significant component of Plaintiffs’ case is the allegation that the
Genesis Defendants ... and Courtney Smith took part in a scheme commencing on December 21, 1999 to inflate the price of Genesis shares by having financial commentator Smith recommend Genesis stock during his frequent television appearances in exchange for 216,000 shares of Genesis stock.
(Compl.¶ 3(a).) On May 23, 2001, however, before either Desai or Lamb purchased their Genesis shares, Bloomberg published an investigative report exposing information regarding the relationship between Smith and Genesis that involved Genesis paying Smith for his promotion of its stock.
4. Adequacy
The fourth requirement of Rule 23(a) — adequacy of representation — is related to the typicality requirement. If the representative parties have interests or claims that are significantly different than those of the majority of the of class members, then neither typicality nor adequacy is present. See Potash,
Defendants challenge Plaintiffs’ adequacy as class representatives by claiming that Plaintiffs are “figurehead” plaintiffs — that they “lack the incentive and/or ability to direct the litigation and are only too willing to defer to their lawyers.” (Nomura Mem. in Opp’n at 13.) Specifically, Defendants argue that Plaintiffs (1) are unfamiliar with the basic claims and parties involved in this litigation; (2) are unaware of the material events that have occurred in this litigation; (3) have not supervised or monitored counsel’s performance, displaying a lack of incentive or interest in directing the litigation; and (4) do not have an understanding of “what it really means to be a fiduciary charged with protecting the rights of absent class members.”
Plaintiffs respond in two ways. First, Plaintiffs argue that they need not demonstrate the depth of their personal knowledge regarding the details of the litigation. Rather, they “need only demonstrate that their counsel is qualified and that no conflicts exist between the plaintiffs and the class members.” (Reply Mem. at 4.) Next, Plaintiffs assert that Defendants misconstrue their deposition testimony and, that, properly read, Plaintiffs’ testimony establishes that they have sufficient knowledge of the litigation to be class representatives. (See id.)
“As with all factors in a motion to certify a class, the movant bears the burden of proof on the question of adequacy.” Ogden v. AmeriCredit Corp.,
The Court determines that Plaintiffs have, at best, made a minimal showing of adequacy on the part of the proposed representatives. The suggested class representatives have not demonstrated a deep understanding of this action when questioned in their depositions. (See, e.g., Lamp Dep. Tr. at 49-50) (testifying that she had not read the Complaint in this action, nor reviewed any of the papers filed with the Court in connection with the litigation); C. Long Dep. Tr. at 69, T. Long Dep. Tr. at 37-38 (testifying that they did not know who the other proposed class representatives were); Desai Dep. Tr. at 146-49 (testifying that he did not know who the other proposed class representatives were or why they were added); C. Long Dep. Tr. at 77-79 (testifying that he had not taken any action to monitor class counsel’s performance beyond his “faith in the job that they’re doing”). Nor did plaintiffs indicate a strong desire to participate in the decision-making regarding the direction and strategy of the litigation implemented by their counsel. (See, e.g. id.; see also Desai Dep. Tr. at 137-39 (testifying that he was unaware of his attorneys’ decision not to pursue claims against certain defendants, and that his attention to the progress of the case depended on “if I have time, or ... what I’m doing”); C. Long Dep. Tr. at 84) (“Q: ‘other than your faith in your counsel, you have no idea ... whether your counsel is properly prosecuting this lawsuit?’ A: ‘That may be correct.’ ”).
The Court also notes that only one of the currently-named plaintiffs — Desai — was granted lead plaintiff status by the California court, and that decision came only after the court noted it was “unsatisfied with the applicants’ responses to inquiries related to the allegations of fraud and Rule 23 adequacy and typicality.” (Goodchild Aff. Ex. 10 at 4.) The other plaintiff eventually approved by the California courF — Horizon — withdrew from its position as a class representative on December 21, 2004 (the day before it was scheduled to be deposed).
Despite Plaintiffs’ weak showing on the adequacy prong, however, the Court determines that Plaintiffs have made a showing of involvement in the action minimally sufficient to meet their burden.
B. Rule 23(b) Analysis
In addition to satisfying all the criteria of Rule 23(a), a party seeking class certification must satisfy one of the requirements of Rule 23(b). Plaintiffs claim they have satisfied Rule 23(b)(3), which requires (1) “that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members,” and (2) “that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.” Fed.R.Civ.P. 23(b)(3).
“[T]he predominance requirement of subdivision (b)(3) is ‘far more demanding’ than the ‘commonality’ requirement of subdivision (a).” In re The Hartford Sales Prac
Here, Defendants attack Plaintiffs’ showing (or lack thereof) on issues regarding proof of reliance under Rule 10b-5. As discussed above, Rule 10b-5 was promulgated by the SEC pursuant to § 10(b) of the Securities Exchange Act of 1934 and it prohibits fraudulent conduct in the sale and purchase of securities. NationsMart,
1) that the defendant acted in a manner prohibited by the Rule, whether it be that the defendant employed a device, scheme, or artifice to defraud, made misrepresentations or omissions of material fact, or engaged in acts, practices or courses of business that operate as a fraud or deceit; 2) causation, often analyzed in terms of materiality and reliance; 3) damages; and 4) that the fraudulent activity occurred in connection with the purchase and sale of a security.
Id. (quoting Harris,
In the securities class certification context, issues surrounding proof of reliance can play a crucial role in a court’s decision as to whether common questions will predominate. Accordingly, “a district court must perform sufficient analysis to determine that class members’ fraud claims are not predicated on proving individual reliance.” Unger v. Amedisys, Inc.,
In part because the need to show individualized reliance could eviscerate attempts to bring class actions, courts have developed situations in which reliance may be presumed. “In a case involving a failure to disclose information to investors, courts will presume reliance if the omitted information is shown to be material.” NationsMart,
Plaintiffs have waffled in their presentation of the theory of their case. In their Reply Memorandum, Plaintiffs rejected for the first time the fraud-on-the-market theory. (Reply Mem. at 16 (“plaintiffs are not relying upon the fraud-on-the-market presumption of indirect reliance established in Basic, Inc. v. Levinson”).) In fact, Plaintiffs concede that the market for Genesis stock
While Plaintiffs have rejected the fraud-on-the-market theory for purposes of this Motion, they continue to claim that they “relied upon the integrity of the market, which had been secretly corrupted” by Defendants. (Reply Mem. at 16.) However, Plaintiffs do not adequately explain how they expect to prove the allegations in their Complaint— that Plaintiffs relied on the integrity of the market price in purchasing their stock— when Desai explicitly disclaims this notion. Desai bought 50,000 shares of Genesis stock on September 25, 2001, the last day of the class period. (Desai Dep. Tr. at 65.) He made the decision to buy the stock because he believed that “there was just mass confusion among traders” regarding whether or not the company had split the stock that day. (Id. at 171.) Thus, he thought the stock was mis-priced due to the confusion stemming from the previous announcement of a stock split, and the subsequent decision by the company not to implement that plan. It appears to the Court that Desai’s testimony contradicts the allegations in Plaintiffs’ Complaint that “[a]t the times Lead Plaintiffs ... purchased Genesis stock, they relied on the integrity of the market price of Genesis publicly traded stock.” (Compl.H 45.) This clearly raises issues of fact particular to Desai (and possibly other proposed class members) and these issues of fact are at odds with Plaintiffs’ theory of reliance.
While the Court is aware of the conflicting views as to whether a plaintiffs trading strategy influences his or her ability to establish a fraud-on-the-market presumption of
Plaintiffs also contend that the Court should “simply assume the truth of the allegations of reliance set forth in [their] Complaint.” (Reply Mem. at 17.) It is established, however, that because of “the important due process concerns of both plaintiffs and defendants inherent in the certification decision, the Supreme Court requires district courts to conduct a rigorous analysis of Rule 23 prerequisites.” Unger,
Even if the Court did assume the truth of Plaintiffs’ allegations for purposes of this Motion, it is not clear how this would satisfy their burden under Rule 23(b)(3) to establish that common issues would predominate over individual issues within the class. They allege that “Lead Plaintiffs and the Class have suffered damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for Genesis stock.” (Compl.H 265.) They also allege that “Lead Plaintiffs and the Class would not have purchased Genesis stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants’ materially misleading statements and manipulative conduct.” (Id.) According to Plaintiffs, “[b]ecause the Court should simply credit these allegations as true at this preliminary stage of the litigation, defendants’ reliance-based attacks on the class certification should be rejected.” (Reply Mem. at 18.)
Plaintiffs’ allegations that each member of the class relied on the integrity of the market do not, however, provide the Court with the mechanism by which to presume that each class member did so. Plaintiffs have not provided the Court with any authority to establish that reliance on the integrity of the market price, without a showing that the market was efficient, may create a class-wide presumption of reliance for purposes of a § 10(b) action.
C. Conclusion
The Court determines that Plaintiffs have failed to satisfy their burden of establishing that a class action is an appropriate mechanism for trying this case. Plaintiffs have not presented a showing sufficient to convince the Court that issues of law or fact common to the members of the class predominate over any questions affecting only individual members. See Fd.R.Civ.P. 23(b)(3). Nor have Plaintiffs established typicality under Rule 23(a). In addition, Plaintiffs’ weak presentation on the adequacy prong of Rule 23(a) further bolsters the Court’s conclusion that certification is not appropriate in this case. Accordingly, the Court will deny the instant Motion for Class Certification.
Conclusion
Based on the foregoing, and all of the files, records, and proceedings herein, IT IS ORDERED that Plaintiffs’ Motion for Class Certification (Doc. No. 217) is DENIED.
Notes
. For simplicity, the Court will refer to Plaintiffs’ "Third Consolidated Amended Class Action Complaint" (Doc. No. 259) as the "Complaint.”
. Section 20 of the Securities Exchange Act extends liability under § 10(b) and Rule 10b-5 to any "controlling person.” See In re NationsMart Corp. Sec. Litig.,
. Under the PSLRA, the court "shall appoint as lead plaintiff the member or members of the purported plaintiff class that the court determines to be most capable of adequately representing the interests of class members ... in accordance with this subparagraph.” 15 U.S.C. § 78u-4(a)(3)(B)(i). "The PSLRA creates a rebuttable presumption that the most adequate plaintiff is 'the person or group of persons that ... has the largest financial interest in the relief sought by the class ... and otherwise satisfies the requirements of Rule 23 of the federal Rules of Civil Procedure.' ” In re Quintus Sec. Litig.,
. Because this legal framework is determinative for purposes of the instant Motion, and the parties do not address Plaintiffs’ claims under §§ 20(a) or 20A, the Court need not address the necessary showings under those claims.
. The Court notes that Plaintiffs’ Motion for Class Certification has been in a precarious procedural position from its inception. This lawsuit was commenced in July 2002, with the filing of a Consolidated Amended Class Action Complaint in the California court. In June 2003, the action was transferred to this Court. Plaintiffs first filed a motion for class certification with a supporting brief in March 2004, but as a result of stipulations entered into by the parties (and for reasons not known to the Court), responsive briefing and a hearing on the motion were postponed. The initial motion was subsequently withdrawn, and the instant Motion was finally filed and noticed for hearing in February 24, 2005 — more than two and one-half years after the commencement of the action. The hearing on the Motion was scheduled for May 2005, briefing on the Motion was not complete until May 23, 2005, and less than a week after the hearing on the Motion, briefing began on the motions for summary judgment in this and the seven other related cases on this Court’s docket. Given the compressed nature of the proceedings, at that point the Court decided the most prudent course of action would be to hear the dispositive motions before ruling on the instant Motion. Following the summaty judgment hearings, all of the related matters (excepting this action) were scheduled for a Court mediated settlement conference with Magistrate Judge Boylan. Settlement was effected in all but one of the related matters.
. The Nomura Defendants address the numerosity requirement briefly in a footnote. (See Nomura Mem. in Opp'n at 17, n. 6.) They argue that because Plaintiffs allege Genesis stock was thinly traded, and that Defendants "massively intervened in the daily trading market for Genesis shares,” Plaintiffs' claim that there are hundreds or thousands of class members is not credible. The Court determines that this challenge to Plaintiffs' numerosity showing is insufficient and thus does not impact the Court's conclusion regarding this element of class certification.
. The Complaint details other public disclosures prior to Desai and Lamb's purchase of Genesis shares regarding short interests in Genesis’s stock and Genesis’s efforts to "squeeze” short sellers by urging shareholders to transfer their Genesis stock to personal accounts. (See, e.g., Compl. 1111 183-88.) According to Defendants, these disclosures create further defenses against the claims of Desai and Lamb.
. In addition, the circumstances under which Desai purchased his shares of Genesis indicate that he is not ideally situated to pursue a claim under the same legal theory as the other class representatives and members. The Court will discuss this weakness in Plaintiffs' certification showing in its consideration of the Rule 23(b)(3) requirements of predominance and superiority. (See infra pp. 332-34.)
. Defendants appear to advocate that the Court adopt a heightened standard under the adequacy prong of Rule 23(a) due to the applicability of the Private Securities Litigation Reform Act ("PSLRA”), 15 U.S.C. § 78u-4(a)(3), to this case. The Court rejects this invitation to heighten the requirements for class certification under Rule 23, as “the PSLRA did not modify [Rule] 23, and only relates to the selection of an otherwise eligible plaintiff as the lead class plaintiff.” Franklin High Yield Tax-Free Income Fund v. The City of Baudette,
. The California court noted that the decision to ultimately approve Desai and Horizon as lead plaintiffs of the proposed class was made "[i]n light of the failure of any other party to apply for lead plaintiff.” (Goodchild Aff. Ex. 13.) The Court does not interpret the order establishing Desai and Horizon as lead plaintiffs as a ringing endorsement of their adequacy.
. The Court’s conclusion that Plaintiffs' showing on the Rule 23(a) adequacy factor is thin, while not dispositive of the ultimate issue, further bolsters the Court's conclusion that certification is not appropriate here. The Court is particularly mindful of this weakness, as the adequacy “requirement's purpose is to protect the legal rights of absent class members.” London v. Wal-Mart Stores, Inc.,
. The Eighth Circuit, in NationsMart, also noted that "[s]ome courts recognize a fraud-created-the-market theory, where reliance may be presumed if the defendants' fraudulent activity is so pervasive that it goes to the very existence of the securities and the validity of their presence on the market.”
. In some circumstances, "a demonstration of an efficient market is a prerequisite for certification,” because ”[w]ithout an initial demonstration of market efficiency, there is no assurance that the available material information concerning the stock translates into an effect on the market price and supports a classwide presumption of reliance.” Unger,
. Plaintiffs do, however, state in a footnote that "[e]ven if a showing of an 'open and developed market' were to be required in this action, most of the factors [required to make such a showing] are satisfied.” (Reply Mem. at 18 n. 20.) However, the Court notes that “courts have frequently applied rigorous, though preliminary, standards of proof to the market efficiency determination.” Unger,
. The Court does not reach the question of whether Desai would ultimately be able to establish transaction causation under § 10(b). The Court is not passing on the merits of Desai's claims. The issues raised by his claims, however, demonstrate that issues unique to him and those similarly situated members of the class create a conflict with the other proposed class representatives and members, where the theory of the case advanced by Plaintiffs is reliance on the integrity of the market price.
. Plaintiffs also urge that Affiliated Ute Citizens of Utah v. U.S.,
. Plaintiffs rely on In re Blech Securities Litigation,